Structuring success

Posted on 19 Dec 2014 by The Manufacturer

Having access to sufficient working capital is vital for manufacturers operating in a recovering economy. The correct financing structure can have a significant effect on an organisation’s success, providing the liquidity needed to grow, adapt, make acquisitions or to simply help to manage day-to-day trading requirements. Chris Hawes, UK Corporate Director at RBS Invoice Finance comments.

Asset Based Lending (ABL) is emerging as a more mainstream lending solution and enables businesses to borrow against the value of their trade receivables and inventory to finance the working capital they need. It’s ideal for manufacturers and distributors for example, who often have to invest in materials, inventory, new plants or technology, months before payment is made, during which time cash flow may be restricted.

Initial funding lines are set up to accommodate the highest required funding peak in a firm’s 12 month forecast. This means you operate with headroom that is appropriate – having access to working capital when you need it without having to slow your business growth or raise equity. It is flexible and agile because it is linked to your assets and access to funding is quicker because there is no need to reapply as your requirement grows, so long as your assets cover it, your funding line is there.  This provides added confidence when seeking out new contracts and the ability to take swift action when buying, which could also give manufacturing firms the freedom to take advantage of deals decisively.

One manufacturer who has used ABL to support their growth is North Wales based South Caernarfon Creameries (SCC). The business has recently won a number of blue-chip contracts requiring significant investment in their manufacturing operation in North Wales.

SCC closed its liquid dairy in 2012 to focus on cheese and butter production, which is proving an invaluable strategic decision. Increased demand means that SCC can justify a substantial investment in its Gwynedd site at a proposed cost of £8.5m. Phase one is underway and set to complete by mid-2015 and is being funded through a combination of an increased Asset Based Lending facility and a Welsh Government Grant. Phase two is scheduled for completion in 2018

RBS Invoice Finance has shared a strong working relationship with SCC since 2010 and has provided an increase in the company’s existing Asset Based Lending facility against receivables and inventory together with a term loan to support the plant modernisation which is set to be fully operational in the summer of 2015. The new contracts secured are projected to increase SCC’s annual turnover from £30m to £60m, transforming the future of this Welsh farmer-owned dairy co-operative.

Robert Burgess, Finance Director at SCC explains, “Reinvesting in new facilities is critical to our future growth. We need additional capacity to keep ahead of modern retailer demands, and to achieve best in class operating efficiencies and yields; if you don’t, it limits your growth. The proposal from RBS Invoice Finance was fairly priced and the transparency it gives both parties is excellent – it is working extremely well. Without their support to increase our asset based lending facility all of this would have not been possible and I am extremely grateful for his & RBS’s ongoing support.”

Paul Morgan, RBS Invoice Finance Corporate Manager, added, “Our existing asset based lending facility and close working relationship with management at SCC has given us a good understanding  of the business and the working capital and investment challenges it brings. Alongside the Welsh Government Grant we were able to structure a bespoke asset based lending facility, taking into account the value of SCC’s receivables and inventory as well as its land and buildings to provide the support the business needs. We are absolutely delighted to be playing our part in helping SCC take the next significant steps in its expansion.”